Do You Know When to Fix Your Investment Loan Rate?

Fixed rate terms on an investment loan are no longer a simple choice between certainty and flexibility. From 1 July 2027, new negative gearing rules apply to residential properties purchased after 12 May 2026, which changes the tax treatment of rental losses and how you structure debt.

The decision you face now is whether to lock a rate before or after settlement, and for how long, when the rules governing deductibility and capital gains are still settling into place. That decision depends on whether your property qualifies as an eligible new build, how much of your income the rental loss offsets, and what you expect interest rates to do over the next two to three years.

Fixed Rate Terms Available for Investment Property Loans

Most lenders offer fixed rate terms from one to five years on investment property finance. A one or two year term gives you rate certainty through settlement and the first full financial year, then reverts to a variable rate. A three to five year term locks your repayments through the transition to the new tax rules in July 2027 and beyond.

Consider an investor purchasing a unit near Toowong Village under contract in June, settling in August. If they fix for two years, the loan reverts to variable rates midway through the new tax treatment. If they fix for three years, repayments remain predictable until August 2029, but they cannot access any rate cuts during that period without paying break costs.

Variable rates currently sit around 6.3 to 6.5 per cent for investment loans with principal and interest repayments. Fixed rates for three years are typically 5.9 to 6.2 per cent, depending on the lender and your loan to value ratio. The gap between fixed and variable has narrowed, which makes longer fixed terms more appealing if you value budget certainty during a period of regulatory change.

How Negative Gearing Changes Affect Your Fixed Rate Decision

If you purchased an established dwelling in Toowong or nearby suburbs after 7:30pm on 12 May 2026, rental losses from July 2027 onward can only offset other residential rental income or be carried forward. They cannot reduce your salary or business income.

That rule changes the value of interest deductions. If your property runs at a loss and you have no other rental income to offset it against, you will carry the loss forward until you sell the property or acquire additional rental properties. Fixing your rate locks in the interest cost, but it does not change whether that cost is immediately deductible or quarantined.

An investor buying a townhouse on Jephson Street in August with a loan amount of $650,000 at a fixed rate of 6.0 per cent will pay around $42,000 in interest over the first year. If the property is tenanted for 50 weeks at $650 per week, rental income is $32,500. After strata fees, rates, insurance and other costs, the property shows a loss. Under the new rules, that loss sits in a quarantine account rather than reducing taxable income from other sources. Fixing the rate gives certainty over the loss amount but does not restore immediate deductibility.

If the property qualifies as an eligible new build, existing negative gearing rules continue to apply. In that case, fixing the rate for three to five years locks in the deductibility of a known interest cost, which can be valuable if you expect rates to rise or remain elevated.

Fixed Rate Break Costs and Why They Matter for Investors

Break costs apply when you repay or refinance a fixed rate loan before the term ends. The cost reflects the difference between the rate you fixed at and the rate the lender can now earn by lending that money elsewhere. If rates have fallen since you fixed, break costs can run into tens of thousands of dollars.

For investment property, break costs are a deductible expense in the financial year they are incurred, provided the loan remains for income-producing purposes. That makes the timing of any refinance relevant. If you fix for five years and want to refinance after three, the break cost might be $15,000 or more, depending on how far rates have moved. That cost is deductible, but you still need to fund it upfront.

Investors sometimes split their loan amount between fixed and variable portions to retain flexibility. A 60 per cent fixed, 40 per cent variable split allows you to make extra repayments or access redraw on the variable portion without triggering break costs, while still locking in the majority of your repayments. That structure works well if you expect lump sum income from bonuses or business distributions and want the option to reduce debt faster.

What Happens When Your Fixed Rate Term Ends

When a fixed rate term expires, the loan automatically reverts to the lender's variable rate unless you choose to refix. Most lenders contact you 30 to 60 days before expiry to offer a new fixed rate. That rate will reflect market conditions at the time, not the rate you originally locked in.

If you fixed in late 2024 or early 2025 at 5.8 per cent for three years, your term will end in late 2027 or early 2028. At that point, you can refix at whatever rate is available, switch to variable, or refinance to another lender. The decision depends on where rates have moved, whether your circumstances have changed, and whether your current lender remains competitive.

Refinancing an investment loan involves a full application, serviceability assessment and valuation. Lenders apply the 3 percentage point buffer, so your income must service the loan at the product rate plus three per cent. If rental income has not increased in line with interest costs, or if your other borrowing has grown, serviceability can tighten. That makes the refix decision less flexible than it appears, particularly if you rely on rental income to meet the serviceability test.

Interest Only Terms and Fixed Rates for Investment Loans

Most investment property loans in Toowong are structured with an interest only period for the first one to five years, then revert to principal and interest. An interest only term reduces monthly repayments and maximises the deductibility of interest, though it does not reduce the loan balance.

You can fix the rate during an interest only period. The fixed term and the interest only period are separate features, but they often run concurrently. If you set up a five year interest only term and fix the rate for three years, the loan will revert to variable after three years but remain interest only until the end of year five.

That structure matters under the new tax rules. If your rental losses are quarantined, keeping repayments lower during the interest only period does not deliver an immediate tax benefit unless you have other rental income to offset. It does, however, preserve cash flow, which is valuable if you are building a portfolio or managing multiple properties.

An investor purchasing a two-bedroom apartment near the Regatta ferry terminal with a loan amount of $580,000 might choose a three year fixed rate during a five year interest only term. Monthly repayments remain constant for three years, then move to variable rates but stay interest only for another two years. That approach defers the step up to principal and interest repayments until year six, giving time to assess whether rental income has grown or whether refinancing to another interest only term makes sense.

Should You Fix Before or After Settlement?

You can lock a fixed rate at any point between loan approval and settlement, or after settlement on an existing variable loan. Locking before settlement is common when investors want certainty over repayments from day one. Locking after settlement allows you to monitor rate movements and fix only if rates start to rise.

Lenders typically hold a fixed rate for 90 days from the lock-in date. If settlement occurs outside that window, the rate expires and you will need to relock at the current market rate. That risk is relevant for off-the-plan purchases or builds with uncertain completion dates, though the new APRA exemptions for newly erected dwellings mean these loans may be treated differently under DTI caps.

For established properties in Toowong settling within 60 days, locking at approval gives certainty. For properties with longer settlement periods, waiting until closer to settlement reduces the chance of the rate expiring before you draw down the loan. There is no single answer, but understanding the lock period and settlement timeline is essential before committing to a fixed rate.

How the Debt-to-Income Cap Affects Fixed Rate Structuring

From February 2026, lenders may fund only 20 per cent of new investment loans at a debt-to-income ratio of six times or more. That cap applies at the lender level, not to your individual application, but it has tightened approval conditions for investors with high income and low deposits.

Fixing your rate does not change your DTI ratio, but it does affect how lenders assess serviceability. A fixed rate loan is serviced at the fixed rate plus the 3 percentage point buffer, while a variable rate loan is serviced at the variable rate plus buffer. If fixed rates are lower than variable rates, fixing can improve your serviceability position and make it easier to meet the DTI threshold.

This dynamic is temporary. Once fixed rates rise above variable rates, the serviceability advantage reverses. For now, fixing at a lower rate can help you qualify for a higher loan amount or meet lender policy where your DTI sits close to six times income.

Comparing Fixed Rate Investment Loan Products Across Lenders

Fixed rates vary by lender, loan amount, LVR and whether you are refinancing or purchasing. A borrower with a 20 per cent deposit and strong serviceability will access lower rates than a borrower with a 10 per cent deposit requiring Lenders Mortgage Insurance.

Major banks, regional lenders and non-bank lenders all offer fixed rate investment loan options. The big four typically price fixed rates within 10 to 20 basis points of each other, but second-tier lenders sometimes offer sharper pricing to win market share. Non-bank lenders can be competitive for investors with complex income structures or multiple properties, though their variable rates after the fixed term ends are often higher than bank rates.

When comparing investment loan products, look at the fixed rate, the comparison rate, the revert rate after the fixed term, and any restrictions on extra repayments or offset accounts during the fixed period. Some lenders allow up to $10,000 or $20,000 in additional repayments each year without penalty. Others lock the loan completely. If you expect irregular income or want to retain some flexibility, those features matter more than a 10 basis point difference in the fixed rate itself.

Call one of our team or book an appointment at a time that works for you. We compare investment loan options from banks and lenders across Australia and structure fixed rate terms around your property type, deposit, and the tax treatment that applies to your purchase date.

Frequently Asked Questions